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Ethics and the International Garment Industry: Part One

A couple of months ago ‘human rights consultant’ Michael Hobbes wrote a critique of the ‘ethical shopper’ paradigm of global manufacturing reform, followed several days later by a more pointed addendum. His critique is fixed around the argument that major western fashion brands are not as powerful as they are thought to be and that in the future they will become weaker. As such, he argues that consumer pressure on brands is not effective as a force for change.

His main points are:

(1) An evolution in global apparel (the rise of ‘megasuppliers’ and ‘fast fashion’) means that not even brands have precise knowledge of where their products are made;

(2) Western consumption will decline over the coming decades: the new big markets are in developing countries, and it is goods that are manufactured for these markets that are produced in the worst conditions;

(3) As a result of the changing dynamics of consumerism (the rise of new middle classes in developing countries), the importance of western brands will diminish in favour of an ‘undifferentiated goods’ model of production.

Maybe even more than the other reasons I’ve outlined, this is why consumer advocacy campaigns are never going to improve working conditions in the developing world: Western markets simply don’t matter as much as they used to. India produces twice as much clothing for its own consumers as it does for us. Fifty-six percent of the clothing produced in China is for the Chinese market. Both of those numbers are only going to grow. (Michael Hobbes)

Taken as an argument against one type of complacency (thinking the improvement of the world, begins and ends with individual choice at shopping centres), Hobbes’ position is compelling. He raises some interesting points (which I will run through in Part Two). But first I want to run through a number of problems in his analysis of brands and their relation to the factories producing their products.

The first part of Hobbes argument concerns the inability of large brands to effectively ensure their supply lines are free of exploitation. On Hobbes account, this is due to the inherent opacity of a system with a proxy (mega supplier) with an interest in keeping brands separate from the point of production; this situation has been (somewhat) necessitated by the ever fickle market of ‘fast fashion’ because swings of fashion-moods can mean demand for new to newer products from one week to the next, requiring specialists able to swiftly allocate resources. In addition, Hobbes alludes to the altered power differential between brands and mega suppliers – these mega suppliers (once simply ‘suppliers’) have grown in power and influence.

There are two main problems I have with this scenario. (1) I am not convinced that the connections from brands to suppliers to factories are (or have to be) as opaque as Hobbes claims; (2) the profit margins of mega-suppliers are dwarfed by the major brands and hence power is on the side of brands and not the supplier.

To illustrate these problems I’ll go to the example Hobbes most frequently cites – the Tazreen factory in Dhaka Bangladesh which burned down in 2011 killing at least 112 workers and injuring many more. Not only is this disaster the worst in the history of Bangladesh’s garment industry to date, but with reports of employees being asked to continue working while the factory was ablaze it became a flashpoint concern over worker exploitation.

For Hobbes, the Tazreen factory illustrates his point of the inherent opaqueness of modern manufacture. After the fire the figure that 60% of items manufactured in Tazreen were produced for the American department-store giant, Walmart (other brands such as H&M, Disney, Carrefour also had items produced in the factory) was published, this lead to a massive boycott of Walmart by conscientious shoppers. However, Hobbes claims (as Walmart did) that Walmart was not even aware that their clothes were manufactured in the Tazreen factory; furthermore they had expressly prohibited their products from being manufactured in the Tazreen factory. Hobbes account is that a contractor of a contractor (the Tuba Group) assigned the factory to produce the clothes against the wishes of Walmart. Walmart stated that it has since cut ties with this (unnamed) supplier.

Yet records of Walmart’s own safety inspectors state that Tazreen factory had been issued only one strike (of a 3 strike per year allowance) in the year of the fire, suggesting that the factory had not as yet breached Walmart’s own standards (and a Walmart inspection occurring closer to the date of the fire stated that the factory’s safety had improved). In addition, other documents have been discovered proving that management at the factory knew they were producing goods for Walmart – evidence of transparency going in at least one direction. While these facts do not indicate Walmart’s complicity, they do cast suspicion on the claim that brand/manufacture relationships are necessarily secretive and opaque.

Another aspect of of Hobbes argument hinges on the growing power of ‘mega suppliers’. As stated above, the Tuba Group owned the Tazreen factory. This group had contracts with the supplier Li & Fung for Tazreen at the time of the fire. Li & Fung is known to be the largest agent connecting brands to garment-manufacture and hence it is the ‘megasupplier’ Hobbes refers to in his writing. As the largest supplier, Li & Fung still has contracts with Walmart (as well as with a huge number of other companies). But just how large is this largest-of-all supplier of garments? Hobbes writes the following impressive statement:

Li & Fung, which produces everything from Wal-Mart basics to Disney plush toys to Spanx, has revenues of $19.2 billion; more than Ralph Lauren, Armani and Tommy Hilfiger combined.

Yet, Li & Fung’s most recent figures of revenue for the half-year from Jan to June (2015) are $8.6 billion USD; this is equivalent to $162.6 million net profit (and a quarterly figure of ~$81.3)). While this is still a huge figure, comparing it with the quarterly profits of just a few major brands puts Li & Fung’s success into perspective: Nike ($865 million), H&M ($785.5 million net), Walmart ($16 billion net). Not only is the wealth of these three brands vastly higher than Li & Fung’s but they share in the company of many other hugely successful brands too**.

On the basis of these figures, the power differential between Li & Fung and major brands remains very much on the side of the brands. The notion that Li & Fung could deny to brands accurate information against the will of those brand’s management does not seem plausible. These organisations have the power to demand the knowledge (should they have the will). And on this note, it is worth mentioning that Li & Fung is one of the only organisations (thus far) to have paid compensation to the victims of the Tazreen factory fire. This fact suggests that the distance kept between brands and factories serves not only the interest of suppliers .

From this perspective, pressuring brands to lift the standards of the factories in which their products are produced is not a dead-end cause. If major brands still have power and knowledge of the conditions of manufacture, as I believe they do (and should), then the consumers of their products have the power to leverage the reputation of brands through their ‘ethical’ choices. In addition, a point Hobbes neglects is that western brands are not only popular in the developed western countries; many are already popular and becoming more so in developing countries.

*As I was unable to find quarterly figures for Li & Fung I crudely divided the half-yearly figure by two.

**One important reason for the higher income of the brands here is that they ‘value add’ to their products with the application of their brand names (or simply by their being sold within their outlets). Li & Fung on the other hand simply provide a service. Yet, as Hobbes points out, as Li & Fung itself becomes better known, they too will have a reputation to defend.

In Part Two I will be explore some of the more interesting aspects of Hobbes critique:

The rise of middle-class markets in the developing world and growth of new markets, and the rise of new brands; cultural and historical differences that separate the middle class of developing countries from the long-developed middle classes of the west; complications of the ‘ethical choice’ paradigm – the fact that brands are only a proportion of all manufactured goods; and Hobbes’ argument that actual systemic change (law and policing) is needed in developing countries for real improvements to arise.